Description

SEBI introduces amendments to strengthen governance of Stock Exchanges, Clearing Corporations and Depositories through enhanced roles for Managing Directors, Executive Directors, CTO and CISO.

Summary

SEBI has issued amendments to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and Depositories and Participants Regulations, 2018 to strengthen governance of Market Infrastructure Institutions (MIIs). The amendments mandate appointment of Executive Directors for two verticals (Critical Operations and Regulatory/Compliance), clarify roles and responsibilities of Managing Directors, and establish new reporting structures. These provisions come into force on December 20, 2025.

Key Points

  • Amendments issued via Gazette Notifications No. SEBI/LAD-NRO/GN/2025/276 and No. SEBI/LAD-NRO/GN/2025/275 dated November 21, 2025
  • Applies to all Stock Exchanges, Clearing Corporations and Depositories
  • Mandatory appointment of Executive Directors for Vertical 1 (Critical Operations) and Vertical 2 (Regulatory, compliance, risk management and investor grievances)
  • Both EDs will be members of the Governing Board of the MII
  • EDs must be appointed through open advertisement in national daily newspapers
  • At least two candidate names must be forwarded to SEBI for approval without order of preference
  • SEBI approval required for both ED appointment and compensation
  • Public Interest Directors (PIDs) shall assess ED performance through annual evaluation mechanism similar to MD evaluation
  • EDs of both verticals report to Managing Director for all purposes
  • Standing Committee on Technology (SCOT) to hold separate quarterly meetings with ED of Vertical 1 without MD presence
  • MIIs facing genuine practical difficulties may seek exemption on case-by-case basis

Regulatory Changes

Amendments to SECC Regulations, 2018:

  • Enhanced roles and responsibilities of Managing Director
  • Provisions regarding MD’s directorship in other companies
  • Mandatory appointment of Executive Directors, Chief Technology Officer (CTO) and Chief Information Security Officer (CISO)

Amendments to D&P Regulations, 2018:

  • Similar provisions for depositories regarding MD roles, ED appointments, and CTO/CISO positions

Governance Structure:

  • Two mandatory Executive Director positions created
  • Vertical 1: Critical Operations
  • Vertical 2: Regulatory, compliance, risk management and investor grievances
  • Both EDs elevated to Governing Board member status

Approval Process:

  • SEBI approval required for ED appointments
  • SEBI approval required for ED compensation and any changes to compensation terms
  • Names must be submitted at least two months before existing ED’s last working day

Compliance Requirements

For Market Infrastructure Institutions:

  1. Appointment Process:

    • Publish open advertisement in all editions of at least one national daily newspaper
    • Ensure applicants have adequate experience and qualifications relevant to respective verticals
    • Forward minimum two candidate names to SEBI without order of preference
    • Seek SEBI approval for both appointment and compensation simultaneously
    • Initiate succession process at least two months before current ED’s term completion

  2. Governance:

    • Include both EDs as members of Governing Board
    • Establish reporting structure with EDs reporting to MD
    • Ensure PIDs conduct annual performance evaluation of EDs

  3. Oversight:

    • SCOT to conduct separate quarterly meetings with ED of Vertical 1 (Critical Operations) without MD presence
    • SCOT to independently assess performance of ED of Vertical 1

  4. Exemptions:

    • MIIs may seek exemption if facing genuine practical difficulties
    • Exemption requests evaluated on case-by-case basis by SEBI
    • Must demonstrate heterogeneous factors (size, financial health, growth stage)

For Public Interest Directors:

  • Implement annual performance evaluation mechanism for EDs similar to MD evaluation
  • Actively assess ED performance based on established metrics

Important Dates

  • November 21, 2025: Gazette notifications issued
  • December 12, 2025: SEBI circular issued
  • December 20, 2025: Amended provisions come into force (30 days from gazette publication)
  • Ongoing: Names for ED appointments must be submitted at least two months before existing ED’s last working day
  • Quarterly: SCOT meetings with ED of Vertical 1 without MD presence
  • Annually: Performance evaluation of EDs by PIDs

Impact Assessment

Market Impact: This circular represents a significant structural change to governance of all Market Infrastructure Institutions in India. The phenomenal growth in securities markets has amplified the critical role of MIIs to act primarily in public interest, making robust governance essential to prevent adverse impacts on markets and the broader economy.

Operational Impact:

  • MIIs must restructure executive management to create two new ED positions
  • Enhanced oversight through dual reporting (EDs to MD, and ED Vertical 1 to SCOT independently)
  • Increased accountability with EDs as Governing Board members
  • Greater regulatory scrutiny with mandatory SEBI approval for appointments and compensation

Institutional Impact:

  • Strengthened governance through separation of critical operations from regulatory/compliance functions
  • Improved checks and balances with independent SCOT oversight of critical operations
  • Enhanced succession planning requirements
  • Greater transparency through open advertisement mandates

Compliance Burden:

  • MIIs must implement new recruitment processes
  • Additional approval workflows for compensation changes
  • Enhanced performance evaluation systems
  • Regular quarterly reporting requirements

Flexibility Provisions: SEBI has recognized that MIIs vary in size, financial health and growth stage, allowing exemption requests for those facing genuine practical difficulties. This case-by-case approach balances regulatory objectives with operational realities.

Impact Justification

Fundamental changes to governance structure of all Market Infrastructure Institutions with mandatory appointment of Executive Directors and new reporting structures, affecting operational framework of exchanges, clearing corporations and depositories.